Such a move could not only prevent foreclosures but also relieve pressure from the Deposit Insurance Fund, which guarantees depositors in the event of bank failures.
“With more Americans suffering through unemployment or cuts in their paychecks, we believe it is crucial to offer a helping hand to avoid unnecessary and costly foreclosures,” FDIC Chairman Sheila Bair said in a statement. “This is simply good business since foreclosure rarely benefits lenders and would cost the FDIC more money, not less.
The recommendation applies to institutions that have acquired banks through loss-share agreements with the FDIC. Acquiring banks are already required to take part in a program aimed at reducing foreclosures on certain types of home loans.
The new recommendation applies when a job loss or underemployment of the borrower is the lead cause of a potential default on a home loan. The FDIC is asking acquiring institutions to consider relief individual borrowers for at least six months.